Is This Trend a Killer for Oil and Gas?

Very interesting research released last week by the U.S. Energy Information Administration shows that the domestic E&P sector may be headed for some difficult times.

Aug 10, 2014 at 11:18AM

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Very interesting research released last week by the U.S. Energy Information Administration shows that the domestic E&P sector may be headed for some difficult times.

The Administration calculated the spending habits of oil and gas firms operating within the U.S., tallying both incoming operational cash flow and outgoing capital expenditures for these companies.

The results are surprising, revealing that today's oil and gas sector is spending well beyond its means.

Just look at the chart below. 2013 operational cash flow for the industry ran approximately $575 billion—while spending ("uses of cash") averaged just under $700 billion, meaning that firms spent over $100 billion more than they made from operations.

Source: EIA

Of course, these metrics don't tell the complete story when it comes to company financials.

E&P firms could, for example, make up the spending shortfall by selling assets and using the profits to shore up their bank accounts.

But the EIA research reveals that's not the way many companies have been doing things, with numerous firms instead making up the difference in spending through increased bank borrowing.

That means debt loads are growing across the industry, which sets up some interesting dynamics for the sector going forward.

A lot is now riding on the future performance of U.S. fields. Today's E&P spenders are basically betting that increased capital outlays will pay for themselves through rising production and profits down the road.

But the EIA numbers make this proposition look somewhat dubious. As the chart clearly shows, operational cash flows have been largely flat-lined for the last two years, with increased spending no longer giving the financials a lift.

That's a very worrisome trend, which could see today's big spenders left with high and perhaps even unserviceable debt loads as oil and gas fields "run on the treadmill."

This may be where the quality managers in the shale patch start to separate themselves from the pack.

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Written by Dave Forest at

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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